Other investment account question

[Carla G.]

Hi all. I'm a participant-sided ERISA attorney but not as familiar with ESOPs as other plans. I have a client who owns shares in his company's ESOP. From 1998-2005 he had a Company Stock Account (CSA) and in certain years he also had an "Other Investment Account." The CSA and OIA are defined in the Plan. He left the company in 2005, and at the beginning of 2006 the company moved the value of his CSA (.724) shares ($15k+) into a "Segregated Investment Account." To my knowledge he was not notified of this move nor given investment options. We do not know the SIA investment vehicles. The plan does not mention or define SIAs anywhere, even though balances, investment gain/loss, and distributions/transfers are listed under a section called "Segregated Investments Account" on the year-end stock certificate (or what looks like a stock certificate). The Plan defines an "Undistributed Account" as comprised of the "CSA" and "OIA" of a participant that remains at the end of any year in which the participant has terminated employment. The Plan states that the "Trust shall exchange any cash or other liquid assets held in the OIAs of Participants for the shares of Company Stock held in the UA." The client returned to full-time employment in 2007 but his SIA balance remained in the SIA account, mostly losing money. His CSA share accumulations for employment in 2007 started over from zero, as did his vesting for new CSA shares. The SIA balance was always 100% vested. The company admits he should have been fully vested in his (new) CSA accumulations after he returned to work, but claims no harm was done because he didn't take a distribution and he was fully vested in those shares by 12/31/2010. (In 2010 the company entered a consent decree with DOL related to improperly low share price upon termination of employment and segregation of the terminated employees' account balances to the SIAs and my client received a very small adjustment to his SIA balance as it went into his OIA in 2010.) As noted, the $15k+ balance in his SIA remained there until the end of 2010, when it was moved to the OIA, and then to the CSA (it appears in all 3 categories in varying amounts on his 2010 certificate). As noted above, at the end of 2006 he had CSA of .724 and with the return to work in 2007 the "new" CSA shares started over from zero. The $15k amount the company moved from SIA back to CSA in 2010 had nearly the same value in dollars as it did in 2006 when it was moved from CSA to SIA, but when they moved it back and added it to his "new" 2007-2010 share accumulations, they added it back as .514, not .724. The share price was higher in 2010 than 2006, but it sure seems like he lost a lot between starting his CSA accumulations from work in 2007 all over again, as well as having that SIA balance sitting in SIA until 2010.  The PA responded to my first information request basically saying they had a right to move everything into the SIA when he left in 2005. The company does not have a knowledgeable PA and it is not using an ERISA attorney to respond to our questions, so that is part of the problem. But can anyone advise me as to what further questions to ask at this point? I don't want to spend this client's money spinning my wheels, but it does seem like something isn't right with his accumulations. Thanks in advance for any assistance!

[Carla G.]

I would really appreciate any thoughts anyone has on this situation. thank you! Carla

[Degrand]

It seems the focus of the participant's concern is whether the SIA (which is likely being invested in a similar ways the OIA) is prudent.  ESOP are entitled to segregate account balance out of stock and into other investments. See https://www.irs.gov/pub/irs-tege/esop_tar4_022310.pdf.   However, ESOP would still have to prudently invest such funds. Another is issue is that the SOL may have run out on your client's claim since the underlining fact occurred over a decade ago.    

[Carla G.]

Thank you for your response! I was supposed to receive notification of any replies, but never did, so am just seeing it. I do think the issue of prudence might be the main one, as it is entirely unclear what the SIA was invested in. I suppose we could request a breakdown of the investments, right?

Since ERISA has no SOL, what are you basing that comment on? I know here in NY a benefit claim is typically treated as a contract claim, with a 6-yr SOL, so you may be right. Agh. This client is so convinced something is off, but I just don't know how to prove it given the way the PA is (not) handling it. Maybe EBSA would look into it if I called for the client. Any other thoughts? Thank you again!